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Hi Preston,
I'm pretty sure I would have lost money as well.
I believe that the greatest error in judgment on Joe's part was to purchase 10% of the firm. In almost any case this is too big of a position to trade out of. At this point, they only way you can practice risk management is to get a seat on the board and try to engage management on the point you feel are important.
Can you imagine the bid you'd get as an insider trying to sell 10% of Bear over the last two weeks? Can you imagine what this offer would communicate to Bear's clients and consequently do to the stock. I think this is what kept Joe in the trade. It most likely would have kept me there as well.
Depending on when Joe was buying, if he had of purchase a basket of the Goldman, Merrill, Morgan Stanley, Lehman and Bear - he'd probably make money.
Cheers,
Cameron
To: equismetastock@xxxxxxxxxxxxxxxxxxx: no_reply@xxxxxxxxxxxxxxxxxxx: Wed, 19 Mar 2008 22:08:50 +0000Subject: [EquisMetaStock Group] Lewis' Loss
All,Below is a story reported by the Orlando Sentinel concerning the loss of money suffered by Joe Lewis when Bear Sternes bellied up. Several Questions:1. How would you have handled the situation?2. Would you have lost money?PrestonOrlandoSentinel.comLake Nona 'Medical City' will survive Lewis' Bear Stearns loss of more than $1BJerry W. JacksonSentinel Staff WriterMarch 18, 2008Tavistock Group and its high-profile "medical city" in southeast Orlando won't be hurt by owner Joe Lewis' loss of more than $1 billion in the meltdown of investment-banking giant Bear Stearns, a spokesman for the British billionaire and his Windermere-based company said Monday.Lewis, ranked by Forbes magazine as the 368th-wealthiest person in the world, had gambled as much as a third of his net worth during the past year on a turnaround for Bear Stearns Cos., paying an average of about $107 a share for 11 million shares, according to papers filed with federal regulators.But in a stunning downfall for the storied brokerage, the Federal Reserve helped engineer a takeover Sunday by another U.S. investment-banking giant, JPMorgan Chase & Co., for about $2 a share and the assumption of debt."It happened very quickly. The investment essentially went to zero," said Doug McMahon, a managing director for the privately held Tavistock, which Lewis uses to invest some of his earnings as a currency trader and investor.Lewis, who lives part time in Isleworth, the ultra-exclusive residential development in southwest Orange County, will not have to sell any of Tavistock's assets, McMahon said, because no debt was involved in his Bear Stearns holdings."Certainly, it's a big deal," McMahon said of the loss. "But he can absorb the hit, and it doesn't change the business here one way or another." Forbes recently put Lewis' net worth at $3 billion, though McMahon said that figure "underestimates his portfolio," and The Sunday Times of London earlier this month reported that Lewis was worth about $5.6 billion."Our actions will be reassuring," McMahon said of
d, on the infrastructure for its planned medical campus in Lake Nona, a Lewis-owned development in the southeast corner of Orlando. Buildings are already under construction there for the University of Central Florida College of Medicine and the Burnham Institute for Medical Research.McMahon said Tavistock, which recently announced plans to build a 100,000-square-foot "wet lab" in Lake Nona in hopes of attracting startup biotech companies to the medical campus, is going forward with design work on that project. The company also just began building a joint-venture golf resort on New Providence in the Bahamas, in partnership with golfers Tiger Woods and Ernie Els.Lewis, 71, who was born in an apartment above a pub in London's East End, has been widely known as a "contrarian" investor for years, gambling on big returns as others are fleeing an investment. Long a resident of the Bahamas, he began buying up Central Florida property in the late 1970s, acquiring both Isleworth and Lake Nona when they were financially ailing luxury developments.He began snapping up shares in Bear Stearns last year just as the breakdown of the nation's subprime-mortgage market was beginning to spread to other credit instruments across the country and around the world. The company's shares were trading at well over $100 a share when Lewis began accumulating his stake through a Tavistock affiliate, but Bear Stearns had helped create the market for complex financial derivatives, and as that market unraveled, the company's stock price fell.Lewis kept buying as the share price fell, and at one point he was the company's single-largest shareholder. He ranked second, with more than 9 percent of the outstanding shares, when Bear Stearns' fortunes took a turn for the worse last week and the company could no longer raise capital on its own.McMahon, who oversees business investment and marketing for Tavistock, said Lewis never sold his shares as the credit crisis deepened. "It was intended as a long-term investment," he said, and as a bad stock bet i
by an individual.New York-based JPMorgan, the third-largest financial-services company in the U.S., agreed to pay about $260 million for Bear -- a fraction of its $13.6 billion market value as of Nov. 30, the end of its previous fiscal year.David Currie, a professor of economics at Rollins College's graduate school of business in Winter Park, said the Fed's action in helping to arrange the deal was a high-stakes gamble in itself, designed to maintain liquidity in the financial markets and calm the nerves of investors and bankers worldwide."The key is confidence," Currie said. "Once people lose confidence, they try to liquidate as fast as they can."Currie said he, too, was surprised by the rapid collapse of Bear Stearns, an 85-year-old financial institution that had a stock-market capitalization of $3.4 billion, or $30 a share, as recently as Friday, when the Fed and JPMorgan announced a rescue effort. But he said he was not surprised that the nation's central bank had crafted a plan to help Bear avoid bankruptcy.Bear Stearns stock was still trading at more than $4 a share Monday, an indication that at least some investors were betting that the offer of about $2 a share from JPMorgan will somehow be bettered. By the end of the day Monday, a federal lawsuit seeking class-action status had been filed in New York on behalf of investors who had purchased Bear Stearns shares between Dec. 14, 2006, and March 14. The complaint accuses the company of making "materially false and misleading statements" about its financial condition, causing the stock to trade at "artificially inflated prices," which peaked at $159.36 a share in April.
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